Version: FCI June 2010
GENERAL RULES FOR INTERNATIONAL FACTORING
WITH COMMENTARY
(Printed July 2010)
TABLE OF CONTENTS
SECTION I
Article 1
Article 2
Article 3
Article 4
Article 5
Article 6
Article 7
Article 8
Article 9
Article 10
Article 11
GENERAL PROVISIONS
Factoring contracts and receivables
Parties taking part in two-factor international factoring
Receivables included
Common language
Time limits
Writing
Deviating agreements
Numbering system
Commission/Remuneration
Settlement of Disagreements between Export Factor and Import Factor
Good faith and mutual assistance
SECTION II
Article 12
Article 13
Article 14
Article 15
ASSIGNMENT OF RECEIVABLES
Assignment
Validity of assignment
Validity of receivables
Reassignment of receivables
SECTION III
Article 16
Article 17
Article 18
Article 19
CREDIT RISK
Definition of credit risk
Approvals and requests for approvals
Reduction or cancellation
Obligation of Export Factor to assign
SECTION IV
Article 20
Article 21
Article 22
COLLECTION OF RECEIVABLES
Rights of the Import Factor
Collection
Unapproved receivables
SECTION V
Article 23
Article 24
Article 25
Article 26
TRANSFER OF FUNDS
Transfer of payments
Payment under guarantee
Prohibitions against assignments
Late payments
SECTION VI
Article 27
DISPUTES
Disputes
SECTION VII
Article 28
REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
Representations, warranties and undertakings
SECTION VIII
Article 29
Article 30
Article 31
Article 32
MISCELLANEOUS
Communication and electronic data interchange (EDI)
Accounts and reports
Indemnification
Breaches of provisions of these Rules
Version: FCI June 2010
SECTION I
General provisions
Article 1
Factoring contracts and receivables
A factoring contract means a contract pursuant to which a supplier may or will assign accounts
receivable (referred to in these Rules as “receivables” which expression, where the context allows,
also includes parts of receivables) to a factor, whether or not for the purpose of finance, for at least
one of the following functions:
Receivables ledgering
Collection of receivables
Protection against bad debts1
1
As an example of this please see FCI Circular 3454 Q15. Additionally, for a comparison of the definition of a
factoring contract see Legal Circular 0:5 which contains the text of the UNIDROIT Convention on International
Factoring.
Article 2
Parties taking part in two-factor international factoring
The parties taking part in two-factor international factoring transactions are:
(i)
the supplier (also commonly referred to as client or seller),
the party who invoices for the supply of goods or the rendering of services;
(ii)
the debtor (also commonly referred to as buyer or customer),
the party who is liable for payment of the receivables from the supply of goods or rendering
of services1;
(iii)
The Export Factor,
the party to which the supplier assigns his receivables in accordance with the factoring
contract;
(iv)
the Import Factor,
the party to which the receivables are assigned by the Export Factor in accordance with
these Rules2.
1
This is the party to whom the invoices are addressed, unless otherwise stated clearly in the relevant order or the
sales contract. See FCI Circular 3454 Q2.
2
The acceptance of these Rules is confirmed by the Export Factor and the Import Factor by signing the FCI
Interfactor Agreement which is explained in Legal Circular 0:1, Legal Circular 0:2 (for country deviations) and
Legal Circular 0:4 (for changes in the name and/or legal constitution of the parties). Please also see Q&A
“Deviation to the Interfactor Agreement”
Article 3
Receivables included
These Rules shall cover only receivables arising from sales on credit terms of goods and/or services
provided by any supplier who has an agreement with an Export Factor to or for debtors located in
any country in which an Import Factor provides factoring services1. Excluded are sales based on
letters of credit (other than standby letters of credit2), or cash against documents or any kind of sales
for cash.3&4
1
For the credit line requests partially approved by the IF, the supplier is allowed to assign invoices up to the
approved amount to the EF and sell the remaining goods on D/P, cash or L/C basis outside the factoring agreement
under the condition of Art.28 (ii) b). See FCI Circular 3454 Q6
2
Legal Circular 3:3 explains why the transactions covered by standby letters of credit are included in the scope of
GRIF.
3
Legal Circular 3:1 explains that acceptance of credit risk under D/A terms is included in factoring transactions
whereas D/P terms need a deviating agreement to be included. Legal Circular 3:2 explains why L/C, D/P and cash
terms are not included. See also Q&A Re: Article 3, Legal Circular 18:2 and FCI Circular 3454 Q13.
4
Legal Circular 3:4 explain why excluding a cash sale is not a contradiction to Art 19. It also differentiates between
a cash payment and a partial cash payment.
Article 4
Common language
The language for communication between Import Factor and Export Factor is English. When
information in another language is provided an English translation must be attached1.
1
See also Q&A Re: Article 4
-2-
Version: FCI June 2010
Article 5
Time limits
Except as otherwise specified the time limits set forth in these Rules shall be understood as calendar
days. Where a time limit expires on a non-working day or any declared public holiday of the
Export Factor or the Import Factor, the period of time in question is extended until the first
following working day of the factor concerned.
Article 6
Writing
“Writing” means any method by which a communication may be recorded in a permanent form so that it
may be re-produced and used at any time after its creation. Where a writing is to be signed, that requirement
is met if, by agreement between the parties to the writing, the writing identifies the originator of the writing
and indicates his approval of the communication contained in the writing.
(N.B.:
Article 6 amended June 2006)
1
Legal Circular 0:3 states that a recipient of any message in writing is entitled to rely on the authenticity of that message
within FCI correspondence and the list of authorised signatures needs not to be circulated among members.
Article 7
Deviating agreements
An agreement in writing made between an Export Factor and an Import Factor (and signed 1 by both
of them), which conflicts with, differs from or extends beyond the terms of these Rules, shall take
precedence over and supersede any other or contrary condition, stipulation or provision in these
Rules relating to the subject matter of that agreement but in all other respects shall be subject to and
dealt with as part of these Rules.
(N.B.:
Article 7 amended June 2004)
1
See Legal Circular No. 0:3 for Authorized Signatures. Legal Circular No. 0:1 recommends that a deviating
agreement should be signed instead of a change to the Interfactor Agreement. As to the IFIS, this circular states:
“Factors which think that deviations from the standard rules can be documented by way of the Import Factor
Information Sheet (IFIS) are mistaken. The IFIS may give a clarification for certain deviations, but cannot replace the
function of the Interfactor Agreement.” Please also see FCI Circular 3454 Q12.
Article 8
Numbering system
In order to identify exactly all suppliers, debtors, Import Factors and Export Factors, an appropriate
numbering system must be agreed upon between Export Factor and Import Factor.
Article 9
Commission / Remuneration
(i)
The Import Factor shall be entitled to commissions and/or charges for his services on the
basis of the structure and terms of payment as promulgated by the FCI Council from time to
time.
(ii)
The agreed commissions and/or charges must be paid in accordance with those terms of
payment in the agreed currencies. A party delaying payment shall incur interest and the
equivalent of any exchange losses resulting from the delay in accordance with Article 26.
(iii)
In case of a reassignment of a receivable the Import Factor has nevertheless the right to the
commission or charges.
Article 10
Settlement of disagreements between Export Factor and Import Factor
(i)
All disagreements arising between an Export Factor and an Import Factor in connection with
any international factoring transactions shall be settled under the Rules of Arbitration
provided that both are members of FCI at the time of the inception of the transaction.
(ii)
Furthermore any such disagreement may be so settled if only one of the parties is a member
of FCI at the time of request for arbitration provided that the other party accepts or has
accepted such arbitration.
(iii) The award shall be final and binding1.
1
Legal Circulars 10:1, 10:2 , 10:3 and 10:4 report on the three most recent arbitration cases as examples. For the
exact role of the Legal Committee in interfactor disputes see Legal Circular 0:6
Article 11
Good faith and mutual assistance
Under these Rules all duties shall be performed and all rights exercised in good faith. Each of the
Export Factor and Import Factor shall act in every way to help the other’s interest and each of them
Version: FCI June 2010
undertakes to the best of his ability to assist the other at all times in obtaining any document that
may assist the other to carry out his duties and/or to protect his interests. Each of the Import Factor
and the Export Factor undertakes that each will inform the other immediately of any fact or matter
which comes to his attention and which may adversely affect the collection of any receivable or the
creditworthiness of any debtor.1
1
Please also refer to Legal Circular 17:2 for the additional necessary information which may affect the Import
Factor’s decision about the creditworthiness of the debtor(s).
SECTION II
Assignment of receivables
Article 12
Assignment
(i) The assignment of a receivable implies and constitutes the transfer of all rights and interest
in and title to such receivable by any means1. For the purpose of this definition the
granting of a security right2 over a receivable is deemed to be its transfer.
(ii) By reason of the assignment to the Import Factor of full ownership of each receivable, the
Import Factor shall have the right of bringing suit and otherwise enforcing collection either
in his own name or jointly with that of the Export Factor and/or that of the supplier and the
right to endorse debtor’s remittances for the collection in the Export Factor’s name or in
the name of such supplier and the Import Factor shall have the benefit of all rights of lien,
stoppage in transit and all other rights of the unpaid supplier to goods which may be
rejected or returned by debtors3.
(iii) All assignments of receivables must be in writing.
(N.B.:
New Paragraph (ii) added, previous (ii) becomes (iii) June 2009.)
1
The expression “all rights and interests” includes, among other things, any supplier’s retention of title to goods.
The advantages of this are pointed out in Legal Circular 99:1. Also see Legal Circular 12:1 about collaterals for
accounts receivable
2
For the explanation please see Q&A Re: Article 12.
3
See also Legal Circular 99:1 about supplier’s retention of title.
Article 13
Validity of assignment
(i)
The Import Factor is obliged, as regards the law of the debtor’s country, to inform the
Export Factor of:
(a)
the wording and formalities of the notice of assignment1; and
(b)
any elements in an assignment that are necessary to safeguard the Export Factor
against claims of third parties.
The Import Factor warrants the effectiveness of his advice.
(ii)
(iii)
(iv)
(v)
(N.B.:
1
The Export Factor, whilst relying on the Import Factor’s advice under paragraph (i) of this
Article as regards the law of the debtor’s country, shall be responsible for the effectiveness
of the assignment to him by the supplier and of his assignment to the Import Factor
including their effectiveness against the claims of third parties and in the insolvency of the
supplier2.
If the Export Factor requests a particular assignment, enforceable against third parties, the
Import Factor is obliged to act accordingly as far as he is able to do so in accordance with
the applicable law, at the expense of the Export Factor.
Whenever the assignment of a receivable needs special documentation or a confirmation in
writing in order to be valid and enforceable, at the request of the Import Factor the Export
Factor must provide such documentation and/or confirmation in the prescribed way.
If the Export Factor shall fail to provide such documentation or confirmation in relation to
that receivable within 30 days of the receipt of the Import Factor’s request, then the Import
Factor may reassign such receivable.
Paragraphs (i) and (ii) amended June 2004)
As an example of the consequences of the failure by the IF to provide such information properly, please see FCI
Circular 3454 Q17. Legal Circular 13:1 refers to the additional precautions to be taken by the EF in the event it is
necessary to sue the debtor for a second payment in the case of an indirect payment.
Version: FCI June 2010
2
See also Legal Circular 13:2.
Article 14
Validity of receivables
(i)
The Import Factor must receive details of invoices and credit notes relating to any receivable
assigned to him without undue delay and in the case of invoices in any event before the due
date of the receivable1. For the purpose of the GRIF, the “due date” of any receivable shall
mean the date specified for payment of the receivable as stated in the contract of sale,
provided, however, that if such contract specifies payments in instalments then, unless
otherwise dictated by the contract, each instalment shall be treated as having a separate due
date.
(ii)
The Import Factor may require that the original documents evidencing title, including the
negotiable shipping documents and/or insurance certificate, are forwarded through him.
(iii)
At the request of the Import Factor and if then needed for the collection of a receivable the
Export Factor must promptly provide any or all of the following as proof and in any event
within the following time periods2:
(a)
10 days from the receipt of the request, an exact copy of the invoice issued to the
debtor;
(b)
30 days from the receipt of that request:
(1)
evidence of shipment3;
(2)
evidence of fulfilment of the contract of sale and/or services where
applicable;
(3)
any other documents4 which have been requested before shipment.
(iv)
If the Export Factor:
(a)
(b)
(v)
(N.B.:
does not provide the documents referred to in Article 14 (iii); or
fails to provide a reason for that delay and a request for further time, both acceptable
to the Import Factor;
within the prescribed time limits, then the Import Factor shall be entitled to reassign the relevant
receivable.
The time limit for the Import Factor to be entitled to request these documents from the Export Factor
shall be 270 days after due date of the receivable.
Paragraph (iv) added June 2004 - previous (iv) moved to Paragraph (v); Paragraph (i) amended June 2005, June 2006 and June 2010.)
1
See also Q&A Re: Article 14
2
Where the original copy of the documents is needed for validity, then the EF should provide the IF with the
original hard copy to enable the IF to proceed. See Q&A Re: Article 14(iii)
3
For the list of documents to be provided by the EF as proof of delivery, when requested by the IF see Legal
Circular 14:1
4
The expression “any other documents” is explained in Legal Circular 14:2
Article 15
Reassignment of receivables
(i)
Any reassignment of a receivable under Article 13 (v) or Article 14 (iv) must be made by
the Import Factor no later than the 60th day after his first request for the relevant documents,
or, if later, the 30th day after the end of any extended time granted by the Import Factor
under Article 14 (iv).
(ii)
In the event of any reassignment of a receivable permitted to the Import Factor under this
article or under paragraph (vii) of Article 27, except as provided in paragraph (iv) of this
Article, the Import Factor shall be relieved of all obligations in respect of the reassigned
receivable and may recover from the Export Factor any amount paid by the Import Factor in
respect of it.
(iii)
Every such reassignment must be in writing.
(iv)
If any payment shall be received by the Import Factor from the debtor in respect of any
receivable so reassigned before notice of that reassignment shall have been received by the
debtor then the Import Factor shall hold that payment for the benefit of, and remit it to, the
Export Factor promptly.
(N.B.:
1
Paragraph (i) amended June 2004 and again September 2008. In June 2010 Paragraph (ii) amended and Paragraph (iv) added)
See also Q&A Re: Article 15
Version: FCI June 2010
SECTION III
Credit Risk
Article 16
Definition of credit risk
(i)
The credit risk is the risk that the debtor will fail to pay a receivable in full within 90 days of
its due date otherwise than by reason of a dispute.
(ii)
The assumption by the Import Factor of the credit risk on receivables assigned to him is
conditional upon his written approval covering such receivables.
Article 17
Approvals and requests for approvals
(i)
Requests of the Export Factor to the Import Factor for the assumption of the credit risk,
which may be for the approval of individual orders or of credit lines, must be in writing and
must contain all the necessary information to enable the Import Factor to appraise the credit
risk and the normal payments terms.
(ii)
If the Import Factor cannot confirm the exact identification of the debtor as submitted to him
he may amend these details in his reply. Any approval shall apply only to the exact identity
of the debtor given by the Import Factor in that approval
(iii)
The Import Factor must, without delay and, in any event, not later than 10 days from receipt
of the request, advise the Export Factor of his decision in writing. If, within the said period,
the Import Factor cannot make a decision he must, at the earliest, and before the expiry of
the period so advise the Export Factor.
(iv)
The approval shall apply up to the amount approved to the following receivables owed by
the debtor:
(a)
those on the Import Factor’s records on the date of approval;
(b)
those arising from shipments made up to 30 days before the date of request for
approval;
and shall be conditional in each case, upon the receipt by the Import Factor of the invoice
details and the documents as stipulated in Article 14.
(v)
(a)
(b)
(c)
(d)
(vi)
(vii)
Approval in full or in part of an individual order binds the Import Factor to assume
the approved credit risk provided that the shipment of the goods is made not later
than the date of shipment, if any, stated in the request for the assumption of credit
risk or any earlier expiry date indicated by the Import Factor in the approval.
The approval of a credit line binds the Import Factor to assume credit risk on those
receivables up to the approved amount for shipments made before cancellation or
expiry date of the line.
The word “goods” includes “services” and the expression “shipments made”
includes “services performed”.
Shipment in relation to goods occurs when they are placed in transit to or to the order
of the debtor whether by common carrier or the debtor’s or supplier’s own transport
and in relation to services when they are completed.
A credit line is a revolving approval of receivables on a debtor’s account with one supplier up to the
amount of the credit line. Revolving means that, while the credit line remains in force, receivables
in excess of the line will succeed amounts within the line which are paid by the debtor or the Import
Factor or credited to the debtor. The succession of such receivables shall take place in the order in
which they are due for payment and shall be limited at any time to the amount then so paid or
credited. Where 2 or more invoices are due for payment on the same date then their succession shall
take place in accordance with the order of their respective invoice numbers.
All approvals are given on the basis that each account receivable is in conformity with the terms of
payment (with a permissible occasional variation of 100% or 45 days whichever period is shorter)
contained in the pertinent information upon which such approval was granted. However, no such
variation, which extends the credit beyond any credit period specified as a maximum by the Import
Factor in the approval, shall be permitted.
Version: FCI June 2010
(viii)
(ix)
(x)
The approval shall be given in the same currency as the request. However, the credit line
covers receivables represented by invoices expressed not only in that currency, but also in
other currencies; but in all cases the risk to the Import Factor shall not at any time exceed
the amount of the original approval.
There shall be only one credit line for each supplier on each debtor and any new credit line
shall cancel and replace all previous credit lines for the same supplier on the same debtor in
whatever currency denominated.
If it is known to the Import Factor that it is the practice of the debtor to prohibit assignments
of receivables owing by him then the Import Factor shall so inform the Export Factor in
giving his approval or as soon as it is known to the Import Factor if later.
(N.B.
Paragraphs (iv) (v) and vi) amended October 2007. Paragraphs (i), (v), and (vii) amended September 2008. Paragraph (v) amended June
2009 and again June 2010.)
1
See also Legal Circular 17:1 for a description of such necessary information. In addition Legal Circular 17:2
should be taken into account by an EF in his application to an IF in respect of a debtor. Even if there is no field in
the edifactoring.com message it is extremely important to advise the IF, at least in terms of good faith, as explained
in Art.11, about any information which may negatively affect the IF’s decision about the debtor(s). See also Legal
Circular 99:1 about supplier’s retention of title.
2
See also Q&A Re: Article 17(ii). In addition to that, where credit approvals are established for a specific legal entity
and invoices are submitted to the import factor with a different debtor name, each case should be investigated in
order to determine whether such a difference is due to a mere change of name of the same legal entity or a material
change in the identity of that debtor.
3
The effectiveness of the approval has no relation to the effective date of the export factoring contract signed
between the EF and the supplier which contract may include receivables outstanding at its start. In accordance with
Legal Circular 17:3 the effective contract date is for information purposes only and should have no legal significance
for the Import Factor in determining which accounts receivable are covered under his credit approval.
4
Whatever the terms of delivery are, by shipping the goods as provided for in the article, the supplier fulfils his
undertakings in accordance with Article 28 (i) a) and b). However, if the debtor refuses to pay for any reason related to
delivery, then this must be considered a dispute for the purposes of Article 27 and the case should be covered by the
disputes procedure. Please see also Legal Circular 17:5.
5
As an example please see FCI Circular 3454 Q5.
6
For the cases concerning disputed receivables see Q&A Re: Article 17(vi)
7
This rule is applicable only for extension and not to a reduction of terms; see Legal Circular 17:4 and FCI Circular
3454 Q14 . The rule does not apply to the extension of the due date of an invoice already issued. The rule covers only
an occasional extension of terms.
Article 18
Reduction or cancellation
(i)
For good reason the Import Factor shall have the right to reduce or cancel the individual
order approval or the credit line. Such cancellation or reduction must take place in writing
or by telephone (to be confirmed in writing). Upon receipt of such notice of cancellation or
reduction the Export Factor shall immediately notify the supplier and such cancellation or
reduction shall be effective as to shipments made and/or services performed after the
supplier’s receipt of such notice. On or after the sending of any such notice of cancellation
or reduction to the Export Factor, the Import Factor shall have the right to send such notice
also direct to the supplier, but he shall inform the Export Factor of such an action.
The Export Factor shall cooperate, and shall ensure that the supplier shall cooperate, with
the Import Factor to stop any goods in transit and thus minimise the Import Factor’s loss.
The Export Factor undertakes to give the Import Factor all assistance possible in such
circumstances.
(ii)
On the effective date of the termination of the contract between supplier and Export Factor
all order approvals and credit lines are immediately cancelled without notice, but shall
remain valid for any receivable relating to a shipment made and services performed before
the date of termination provided that the receivable is assigned to the Import Factor within
30 days of that date.
(iii)
When the cancellation of the credit line is effective or the credit line has expired then:
(a)
the right of succession ceases and thereafter, except as provided in sub-paragraphs
(b) and (c) of this paragraph, any payment or credit (other than a payment or credit in
Version: FCI June 2010
(b)
(c)
(N.B.
connection with a transaction excluded in Article 3) may be applied by the Import
Factor in satisfaction of approved receivables in priority to unapproved receivables;
if any such credit relates to an unapproved receivable and the Export Factor
establishes to the satisfaction of the Import Factor that the credit arose solely from
the failure to ship or a stoppage in transit, the credit shall be applied to such
unapproved receivable; and
any monies subsequently received by the Import Factor resulting from a general
distribution from the estate of the debtor in respect of receivables assigned by the
Export Factor or the relevant supplier shall be shared between the Import Factor and
the Export Factor in proportion to their respective interests in the amount owing by
the debtor as at the date of the distribution.
Paragraph (iii) (b) and (c) amended June 2003. Paragraph (ii) amended June 2006. Paragraphs (i) and (ii) amended October 2007 and again
September 2008 and again June 2009.)
1
Even though an invoice is not yet assigned, the receivable otherwise approved related to a shipment made before
the reduction or cancellation will be deemed approved after its assignment before its due date. See FCI Circular
3454 Q3.
2
Cancellation of a credit line will be effective upon supplier’s receipt of such a notice. The IF may contact the
supplier direct only in cases where the EF is unable to advise the supplier on time. See Legal Circular 18:1 and FCI
Circular 3454 Q16 .
3
After reduction or cancellation of the credit line, the supplier may prefer to switch to cash or L/C sales. Legal
Circular 18:2 deals with such cases and gives reasons why a supplier may continue to sell for cash or use an L/C
with the knowledge of the Import Factor and is not obliged to continue factoring after the credit line has been
reduced or cancelled.
4
For the treatment of credit notes after termination or cancellation of credit line please see Q&A Re: Article 18.
5
Suppose that the Import Factor has approved EUR 300.000 as part of EUR 500.000 outstanding invoices. Then the
debtor fails. The IF pays EUR 300.000 under guarantee. Subsequently, the IF receives EUR 300.000 from the
liquidation of the debtor’s assets. IF shall transfer to the EF an additional EUR 120.000 as EF’s 40 percent share of
the dividend from the debtor’s estate. Please also see FCI Circular 3454 Q7
Article 19
Obligation of Export Factor to assign
(i)
Subject to the provisions of paragraph (ii) and (iii) of this Article the Export Factor may, but
is not obliged to, offer to the Import Factor all receivables, owing by debtors in any one
country and relating to one supplier, which have been assigned to the Export Factor.
(ii)
The Export Factor shall inform the Import Factor whether or not the Export Factor’s
agreement is to include the whole turnover on credit terms to the debtor’s country.
(iii)
When the Import Factor has approved a credit line on a debtor and an invoice owing by that
debtor has been assigned to the Import Factor, then all subsequent receivables of that
supplier in respect of that debtor must be assigned to the Import Factor, even when the
receivables are only partly approved or not approved at all1.
(iv)
When the Import Factor decides to cancel a credit line, the obligation for the Export Factor
continues to exist until all approved receivables have been paid or otherwise provided for; in
other words, until the Import Factor is “out of risk”. However, after cancellation of the
contract between the Export Factor and the supplier, further assignments of receivables
cannot be expected.
(N.B.
Paragraph (i) amended, old Paragraph (iii) deleted, Paragraphs (iv) & (v) become (iii) & (iv) June 2006. Paragraph (ii) amended October
2007)
1
As an example of the outcome of a breach of this paragraph in relation to the Article 32, please see FCI Circular
3454 Q8.
SECTION IV
Collection of receivables
Article 20
Rights of the Import Factor
(i)
If any cash, cheque, draft, note or other instrument in payment of any receivables assigned
to the Import Factor is received by the Export Factor or any of his suppliers, the Export
Factor must immediately inform the Import Factor of such receipt. It shall be held in trust
Version: FCI June 2010
(ii)
(iii)
(iv)
(N.B.:
1
by the Export Factor or such supplier on behalf of the Import Factor and shall, if so
requested by the Import Factor, be duly endorsed and delivered promptly to him.
If the sales contract contains a prohibition of assignment the Import Factor shall have the
same rights as set forth in paragraph (i) of this Article as agent1 for the Export Factor and/or
the supplier.
If the Import Factor:
(a)
is unable to obtain judgement in respect of any receivable assigned to him in the
courts, any arbitration panel or other tribunal of competent jurisdiction of the
debtor’s country (collectively, a “Tribunal”) by reason only of:
(1)
clear and convincing language relating to jurisdiction or alternate dispute
resolution in the contract of sale between the supplier and the debtor which
gave rise to that receivable; or
(2)
denial of jurisdiction to proceed in the debtor’s country by any such Tribunal;
and
(b)
informs the Export Factor of that inability within 365 days of the due date of the
invoice representing that receivable;
then the Import Factor may immediately reassign that receivable and recover from the
Export Factor any amount paid in respect of it under paragraph (ii) of Article 24.
If, within 3 years from the date of any reassignment referred to in paragraph (iii) of this
article, the Export Factor or the supplier shall have obtained a judgement or award by any
Tribunal in relation to the reassigned receivable against the debtor enforceable in the
debtor’s country, then, to the extent that the receivable had been approved, the Import Factor
shall:
(a)
accept an assignment of all the rights against the debtor under that judgement and
again accept the receivable as approved; and
(b)
make payment under guarantee within 14 days of the date on which payment is to be
made by the debtor according to the judgement provided that the assignment
required under paragraph (iv) (a) of this Article has been made effectively by the
Export Factor within that period.
All costs in relation to the obtaining of judgement under this Article shall be the
responsibility of the Export Factor.
Old Paragraph (i) deleted June 2009. Paragraph (ii) became (iii) and amended June 2004 and June 2009. Paragraph (iv) added June 2009)
For the general cases where the IF is to be used as an Agent instead of Assignee please see Legal Circular 99:4.
Article 21
Collection
(i)
The responsibility for collection of all receivables assigned to the Import Factor rests with
him and he shall use his best endeavours promptly to collect all such receivables whether
approved or unapproved.
(ii)
Except as provided in Article 27 when the total amount of receivables owing by a debtor at
any one time is approved in part:
(a)
the Import Factor shall be entitled to take legal proceedings for the recovery of all
such receivables without obtaining the prior consent of the Export Factor but the
Import Factor shall inform the Export Factor of such action;
(b)
if the Export Factor notifies the Import Factor of his disagreement with such legal
proceedings, which are then accordingly terminated, the Import Factor shall be
entitled to reassign all receivables then owing by the debtor and to be reimbursed by
the Export Factor with the amount of all costs and expenses incurred by the Import
Factor in such proceedings and the provisions of paragraphs (ii) and (iii) of Article
15 will apply to that reassignment; and
(c)
except as provided in paragraph (ii) b) of this Article the costs and expenses of such
legal proceedings shall be borne by the Import Factor and the Export Factor in
proportion to the respective amounts of the approved and unapproved parts of the
outstanding receivables.
Version: FCI June 2010
Article 22
(i)
Unapproved receivables
When all receivables owing by a debtor at any one time are wholly unapproved:
(a)
(b)
(c)
(d)
the Import Factor shall obtain the consent of the Export Factor before incurring legal
and other costs and expenses (other than the Import Factor’s own and administrative
costs and expenses) relating to their collection;
such legal and other costs and expenses shall be the responsibility of the Export
Factor and the Import Factor shall not be responsible for any loss and/or costs which
are attributable to any delay in the giving of such consent by the Export Factor;
If the Export Factor does not answer the Import Factor’s request for consent within
30 days, the Import Factor is entitled to reassign the receivables then or any time
thereafter;
The Import Factor shall be entitled on demand to a deposit from the Export Factor to
cover fully or partly the amount of the estimated costs to be incurred in the collection
of such receivables.
SECTION V
Transfer of funds
Article 23
Transfer of payments
(i)
When any payment is made by the debtor to the Import Factor in respect of any receivable
assigned to him he shall pay in the currency of the invoice the equivalent of the net amount
received in his bank to the Export Factor immediately after the value date or the date of the
Import Factor’s receipt of the bank’s notification1 of the amount received whichever is later
except to the extent of any previous payment under guarantee.
(ii)
All payments, irrespective of the amount, shall be transferred daily via SWIFT or a similar
system.
(iii)
Not later than the day of the transfer the Import Factor shall provide a report showing the
allocation of the amount transferred.
(iv)
The Export Factor shall repay to the Import Factor on his demand:
(a)
any payment made by him to the Export Factor if the debtor’s payment to the Import
Factor was made by a payment instrument2 subsequently dishonoured (cheque or
equivalent) provided that:
(i)
the Import Factor notified the Export Factor of this possibility with the
payment advice (payment under reserve); and
(ii)
the Import Factor's demand has been made within 10 banking days in the
Import Factor's country from the date of his transfer of the funds to the
Export Factor3; or
(iii) such dishonour was the result of a stopped payment order issued by the
debtor owing to a dispute raised later than the issuance of the payment
instrument, in which case the procedures and time limits are as provided in
Article 27 and for that purpose the payment by the Import Factor to the
Export Factor shall be treated as if it were a payment under guarantee.
(iv)
repayments demanded by the Import Factor will not affect his other
obligations4;
(b)
without any time limit, any payment made by the Import Factor to the Export Factor
in respect of any unapproved Receivable or unapproved part of a Receivable to the
extent that payment by the debtor or any guarantor of the receivable is subsequently
recalled under the law of the country of the payer and such recall is either paid or
settled by the Import Factor provided that any such settlement is effected in good
faith.5
(N.B.:
Paragraph (iv) (a) adjusted and Paragraph (iv) (b) added October 2002. Paragraph (iv) (a) adjusted again October 2007)
Version: FCI June 2010
1
The word “notification”, here, means any type of communication from the bank to the Import Factor which shows the
receipt of the payment from the debtor and that includes any daily or other regular report or statement from the bank.
See Legal Circular 23:3.
2
Payment by cheque (or by any kind of payment instrument) is not considered as payment until honoured. A cheque
is only a conditional payment. Payment is made when the funds represented by the cheque or other payment
instrument are received in the payee's bank account. See also Q&A Re: Article 15
3
As an example of this please see FCI Circular 3454 Q11.
4
For an explanation of this Article, see Legal Circular 23:1
5
In any case in which the IF is legally obliged to repay voidable payments received by the IF in relation to assigned
receivables at any time, the EF is obliged to reimburse the IF only such repayments that relate to receivables which
were unapproved. Consequently, the loss of the IF may be greater than the amount of the credit line last in force, see
Legal Circular 23:2. For further explanation see Q&A’s Re: Article 23 (iv) (b) “Voidable Preference”
Article 24
Payment under guarantee
Except as provided in Articles 25, 27 and 32:
(i)
the Import Factor shall bear the risk of loss arising from the failure of the debtor to pay in
full any approved receivable on the due date in accordance with the terms of the relevant
contract of sale or service; and
(ii)
to the extent that any such receivable shall not be paid by or on behalf of the debtor by the
90th day after the due date as described above, the Import Factor shall on such 90th day make
payment to the Export Factor (“payment under guarantee”).
(iii)
For the purpose of paragraphs (i) and (ii) of this Article, payment by the debtor shall mean
payment to any one of the Import Factor, the Export Factor, the supplier or the supplier’s
insolvent estate.
(iv)
In the event of payment to the supplier or the supplier’s insolvent estate the Import Factor
shall co-operate with and assist in the debtor’s country the Export Factor to mitigate any
potential or actual loss to the Export Factor.
(v)
If an approved receivable is expressed in a currency other than that of the corresponding
credit line, in order to determine the approved amount that receivable shall be converted to
the currency of the credit line at the rate of exchange (mid rate) quoted by XE.com (and
used in edifactoring.com) at the date on which the payment under guarantee is due. In all
cases the risk of the Import Factor shall not exceed at any time the amount of the original
approval.
(N.B.:
Heading and Paragraph (v) adjusted September 2008.)
1
Unless there is a dispute or a breach under Article 32, even in the case of a non payment due to country risk
(whether political or administrative) or a Force Majeure, the Import Factor must pay under guarantee, see Legal
Circular 24:1. See also FCI Circular 3454 Q1
2
The earlier Code considered the payment to the supplier’s agent also as a payment. Legal Circular 27:1 explains
why such payments are not included any longer in the scope of this Article of the GRIF.
3
In accordance with Legal Circular 99:3, in the case of an indirect payment any legal action for direct payment,
where necessary, may be started by the IF or by the EF, if the IF is not willing to do this for commercial reasons or
at the option by the EF. In cases where the legal action is to be taken by the EF, the IF should be prepared to
reassign the relative receivable to the EF together with all related rights and actions. Legal Circular 13:1 refers to
the additional precautions to be taken by the EF in the event it is necessary to sue the debtor for a second payment in
the case of an indirect payment.
Article 25
Prohibitions against assignments
(i)
In respect of any approved receivable arising from a contract of sale or for services which
includes a prohibition of its assignment the Import Factor’s obligation for a payment under
guarantee shall arise on the official insolvency of the debtor or when the debtor makes a
general declaration or admission of his insolvency, but, in any event, not earlier than the 90 th
day after the due date as described in paragraph (i) of Article 241.
(ii)
After any payment under guarantee in respect of any approved receivable referred to in
paragraph (i) of this article the Import Factor shall have the sole right to claim in the
insolvent estate of the debtor in the name of the supplier.
Version: FCI June 2010
(iii)
(iv)
(N.B.:
1
The Export Factor shall obtain from the supplier and deliver to the Import Factor any
document that may be required by him for the purpose of making any claim as described in
paragraph (ii) of this Article.
The provisions of this article shall apply, in spite of anything to the contrary elsewhere in
these rules.
Paragraph (iv) added June 2003, Paragraph (i) amended June 2004)
As an example please see FCI Circular 3454 Q18
Article 26
Late payments
(i)
If the Import Factor or the Export Factor fails to make payment of any amount when it is
due to be paid to the other he shall pay interest to that other.
(ii)
Except as provided in paragraph (iii) of this Article, if the Import Factor does not initiate a
payment to the Export Factor according to the requirements of Article 23 or Article 24, the
Import Factor shall:
(a)
be liable to pay to the Export Factor interest calculated for each day from the date on
which such payment shall be due until actual payment at twice the 3-months-LIBOR
as quoted on such due date in the relevant currency, provided that the accrued
amount of interest exceeds EUR 50; and
(b)
reimburse the Export Factor with the equivalent of any currency exchange loss
suffered by him and caused by the delay in payment.
If there shall be no LIBOR quotation for the relevant currency, twice the lowest lending rate
for such currency available to the Export Factor on such date shall apply.
(iii)
If as a result of circumstances beyond his control the Import Factor is unable to make any
such payment when due:
(a)
he shall give immediate notice of that fact to the Export Factor;
(b)
he shall pay to the Export Factor interest at a rate equivalent to the lowest lending
offer rate available to the Export Factor in the relevant currency calculated for each
day from the day when his payment shall be due until actual payment, provided the
accrued amount of interests exceeds EUR 50.
(iv)
Any late payment by the Export Factor to the Import Factor will be subject to the provisions
of paragraph (ii) and (iii) of this article.
(N.B.:
Paragraph (iv) added October 2007)
SECTION VI
Disputes
Article 27
Disputes
(i)
A dispute occurs whenever a debtor fails to accept the goods or the invoice or raises a
defence, counterclaim or set-off including (but not limited to) any defence arising from a
claim to the proceeds of the receivable by any third party. However, where there is a
conflict between the provisions of this Article and those of Article 25 the latter shall
prevail.1
(ii)
Upon being notified of a dispute the Import Factor or the Export Factor shall immediately
send to the other a dispute notice containing all details and information known to him
regarding the receivable and the nature of such dispute. In either case the Export Factor
shall provide the Import Factor with further information regarding the dispute within 60
days of the receipt by the Export Factor or his sending it as the case may be.
(iii)
Upon receipt of such dispute notice the approval of that receivable shall be deemed to be
suspended.
If a dispute is raised by the debtor and the dispute notice is received within 90 days after the
due date of the invoice to which the disputed receivables relates, the Import Factor shall not
be required to make payment under guarantee of the amount withheld by the debtor by
reason of such dispute.
Version: FCI June 2010
(iv)
(v)
(vi)
If a dispute is raised by the debtor and the dispute notice is received after payment under
guarantee, but within 180 days of the due date of the invoice, the Import Factor shall be
entitled to reimbursement of the amount withheld by the debtor by reason of such dispute.2
(a)
The Export Factor shall be responsible for the settlement of the dispute and shall act
continuously to ensure that it is settled as quickly as possible. The Import Factor
shall co-operate with and assist the Export Factor, if so required, in the settlement of
the dispute including the taking of legal proceedings.
(b)
If the Import Factor declines to take such proceedings or if the Export Factor requires
a reassignment of the disputed receivables so that proceedings may be taken in his or
the supplier’s name, then, in either case, the Export Factor is entitled to such
reassignment.
(c)
Whether or not any such reassignment has been made the Import Factor shall again
accept as approved, within the time limits specified in paragraph (v) of this Article,
such disputed receivable to the extent that the dispute is settled in favour of the
supplier (including an admission by the person responsible for the administration of
the debtor’s insolvent estate) provided that:
(1)
the Export Factor has complied with his obligations under paragraph (iv) a)
of this Article;
(2)
the Import Factor has been kept fully informed about the status of
negotiations or proceedings at regular intervals; and
(3)
the settlement provides for payment by the debtor to be made within 30 days
of the date of the settlement, if amicable, or the date of the coming into effect
of the judgement in the case of a legal settlement, provided, however, that
such 30 day period shall not apply in the case of the admission of the debt by
the person responsible for the administration of the debtor’s insolvent estate.
(d)
For the purpose of this Article, “legal settlement” means a dispute settled by way of a
decision of a court or other tribunal of competent jurisdiction (which, for the
avoidance of doubt, shall include arbitration)3 provided such legal proceedings have
been formally commenced by proper service of legal process or demand for
arbitration prior to the term set for an amicable settlement; and “amicable settlement”
means any settlement which is not a legal settlement.
The time limits referred to in paragraph (iv) c) above, for the Import Factor to accept again
as approved a disputed receivable, are as follows4:
(a)
in the case of an amicable settlement, 180 days: and
(b)
in the case of a legal settlement, 3 years5;
in each case after the receipt of the dispute notice in accordance with paragraph (ii) of this
Article. If, however, during such periods, the debtor becomes officially insolvent or makes
a general declaration or admission of his insolvency, the Import Factor shall remain at risk
until the dispute has been settled6.
In the case of a disputed receivable which the Import Factor has accepted again as approved
in accordance with paragraph (iv) of this Article:
(a)
if the receivable has been reassigned to the Export Factor the Import Factor shall
have the right to an immediate assignment to him of all the Export Factor’s or (as the
case may be) the supplier’s rights under the settlement;
(b)
in every such case any payment under guarantee, which is to be made in accordance
with Article 24, shall be made within 14 days of the date on which payment is to be
made by the debtor according to the settlement provided that:
(1)
any assignment required by the Import Factor under paragraph (vi) a) of this
Article has been made effectively by the Export Factor within that period;
and
(2)
the end of that period of 14 days is later than the original due date for the
payment under guarantee.
Version: FCI June 2010
(vii)
If the Export Factor does not comply with all his obligations under this Article and such
non-compliance substantially affects the risk position of the Import Factor, then the Import
Factor shall have the right to reassign to the Export Factor the disputed receivable and the
Export Factor shall promptly reimburse the Import Factor with the amount of the payment
under guarantee; such payment shall include interest from date of payment under guarantee
to date of reimbursement as calculated in accordance with paragraph (iii) (b) of Article 26.
(viii) If the dispute is solved in full in favour of the supplier, all related costs8 shall be the
responsibility of the Import Factor. In all other cases the costs will be the responsibility of
the Export Factor9.
(N.B.:
Paragraph (iv) (b) amended June 2004. Paragraph (iv) (c) (3) amended June 2009. Paragraph (vii) amended June 2010.)
1
See also Q&A Re: Article 27”Delayed Delivery”, Q&A Re: Article 27”Unconditional Acceptance of Goods”, Q&A
Re: Article 27”Dispute as a result of quota rules” and Q&A Re: Article 27 (i)
2
IF is entitled to refuse payment under guarantee also for other undisputed invoices not paid by reason of the
dispute, see Q&A Re: Article 27”PUG”. For the time limits for raising a dispute, see Q&A Re: Article 27 (iii) and
Q&A Re: Article 27 (iii) “Consequences of extension of credit terms on the raising of disputes”. If the debtor raises a
dispute after his payment for the receivable and requests the IF to reimburse him, and the IF is not legally bound to
pay, then the IF should not to pay and tell the debtor to solve the problem with the supplier. As an example of this
please see FCI Circular 3454 Q9.
3
In case of an appeal and if this judgment is not enforceable then the legal settlement will take place at the time of
the decision of the higher legal body. This case is described in Legal Circular 27:4. See also Q&A Re: Article
27”Legal Settlement”.
4
For the background of this paragraph please see Legal Circular 27:2.
5
See also Q&A Re: Article 27 (v).
6
For the cases of PUG after the settlement of dispute related to a failed debtor please see FCI Circular 3454 Q19.
7
The reason for this interest charge is explained in the paragraph e) of Legal Circular 27:3.
8
Meaning of “related costs” is explained in Q&A Re:Article 27”Related Costs”.
9
As an example please see FCI Circular 3454 Q4.
SECTION VII
Representations, warranties and undertakings
Article 28
Representations, warranties and undertakings
(i)
The Export Factor warrants and represents for himself and on behalf of his supplier:
(a)
that each receivable represents an actual and bona fide sale and shipment of goods or
provision of service made in the regular course of business and in conformity with
the description of the supplier’s business and terms of payment;
(b)
that the debtor is liable for the payment of the amount stated in each invoice in
accordance with the terms without defence or claim;
(c)
that the original invoice bears notice that the receivable to which it relates has been
assigned and is payable only to the Import Factor as its owner or that such notice has
been given otherwise in writing before the due date of the invoice, any such notice of
assignment being in the form prescribed by the Import Factor1.
(d)
that each one at the time of his assignment has the unconditional right to assign and
transfer all rights and interest in and title to each receivable (including any interest
and other costs relating to it which are recoverable from the debtor) free from claims
of third parties;
(e)
that he is factoring all the receivables arising from sales as defined in Article 3 of
any one supplier to any one debtor for which the Import Factor has given approval2;
and
(f)
that all such duties, forwarder’s fees, storage and shipping charges and insurance and
other expenses as are the responsibility of the supplier under the contract of sale or
service has been fully discharged.
(ii)
The Export Factor undertakes for himself and on behalf of his supplier:
(a)
that he will inform the Import Factor of any payment received by the supplier or the
Export Factor concerning any assigned receivable; and
Version: FCI June 2010
(b)
(iii)
that as long as the Import Factor is on risk the Export Factor will inform the Import
Factor in general or, if requested, in detail about any excluded transactions as
defined in Article 3.
In addition to the provisions of Article 32, in the event of a breach of the warranty given in
paragraph (i) e) or the undertaking given in paragraph (ii) b) of this Article the Import Factor
shall be entitled to recover from the Export Factor
(a)
the commission and/or charges as agreed for that supplier on the receivables
withheld, and
(b)
compensation for other damages, if any.
1
Should EF and IF agree to establish a non- notification factoring transaction, this should be under a deviating
agreement in accordance with the Article 7 hereof and parties should take into account the suggestions of Legal
Circular 99:5. A standard form of Supplemental Agreement for Non- Notification Cross Border Factoring is
provided in the Legal Manual.
2
As an exampleof the outcome of a breach of this paragraph in relation to the Article 32 please see FCI Circular
3454 Q8
SECTION VIII
Miscellaneous
Article 29
Communication and electronic data interchange (EDI)
(i)
Any written message as well as any document referred to in these Rules, which has an
equivalent in the current EDI Standard can or, if so required by the Constitution and/or the
Rules between the Members whenever either of them is applicable, must be replaced by the
appropriate EDI-message1.
(ii)
The use of EDI is governed by the edifactoring.com Rules.
(iii)
The originator of a communication shall assume full responsibility for the damages and
losses, if any, caused to the receiver by any errors and/or omissions in such communication.
1
See also Legal Circular 0:3.
Article 30
Accounts and reports
(i)
The Import Factor is responsible for keeping detailed and correct debtor ledgers and for
keeping the Export Factor informed about the accounts showing on such ledgers.
(ii)
The Export Factor shall be entitled to rely upon all information and reports submitted by the
Import Factor provided that such reliance is reasonable and in good faith.
(iii)
If for any valid reason the Import Factor or the Export Factor will not be able to make use of
the EDI then the Import Factor shall account and report at least once a month to the Export
Factor with respect to all transactions and each such monthly account and report shall be
deemed approved and accepted by the Export Factor except to the extent that written
exceptions are taken by the Export Factor within 14 days of his receipt of such account and
report.
Article 31
Indemnification
(i)
In rendering his services, the Import Factor shall have no responsibility whatsoever to the
Export Factor’s suppliers.
(ii)
The Export Factor shall indemnify the Import Factor and hold him harmless against all suits,
claims, losses or other demands which may be made or asserted against the Import Factor:
(a)
by any such supplier by reason of an action that the Import Factor may take or fail to
take; and/or
(b)
by any debtor in relation to the goods and/or services, the invoices or the underlying
contracts of such supplier;
provided that in either case the Import Factor’s performance in his action or failure to act is
reasonable and in good faith.
(iii)
The Import Factor shall indemnify the Export Factor against any losses, costs, interest or
expenses suffered or incurred by the Export Factor by reason of any failure of the Import
Version: FCI June 2010
(iv)
(N.B.:
Factor to comply with his obligations or warranties under these Rules. The burden of proof
of any such loss, costs, interest or expense lies with the Export Factor.
Each of the Export Factor and the Import Factor shall reimburse the other for all losses,
costs, damages, interest, and expenses (including legal fees) suffered or incurred by that
other by reason of any of the matters for which the indemnities are given in paragraphs (ii)
and (iii) of this Article.
Paragraph (iii) amended September 2008.)
1
As a possible example of this please see FCI Circular 3454 Q10. This rule also includes repayments of credit
balances (supported by credit note(s) or resulting from errors such as duplicate payment or overpayment), if any, by the
IF to the debtor in case of a legal obligation or for reasons of commercial goodwill. See Legal Circular 99:2.
2
As an example please see FCI Circular 3454 Q17.
Article 32
Breaches of provisions of these Rules1
(i)
A substantial breach must be asserted within 365 days after the due date of the invoice to
which it relates.
(ii)
If the Export Factor has substantially breached any provision of these Rules, the
Import Factor shall not be required to make payment under guarantee to the extent
that the breach has seriously affected the Import Factor to his detriment in his
appraisal of the credit risk and/or his ability to collect any receivable. The burden of
proof lies with the Import Factor. If the Import Factor has made payment under
guarantee the Import Factor shall be entitled to reimbursement of the amount paid,
provided the Import Factor has established his right to reimbursement, to the
satisfaction of the Export Factor, within 3 years from the date of assertion of the
breach.
(iii)
A substantial breach of paragraphs (i) a) and b) of Article 28 that results only from a dispute
shall not be subject to the provisions of this Article and shall be covered by the provisions of
paragraphs (i) to (viii) of Article 27.
(iv) The Export Factor shall promptly reimburse the Import Factor under this Article; such
payment shall include interest from date of payment under guarantee to date of
reimbursement as calculated in accordance with Article 26 (ii).
(v)
The provisions of this Article are additional to and not in substitution for any other
provisions of these Articles.
(N.B.:
1
Paragraph (iii) becomes (i) with the other paragraphs to follow chronologically June 2009. Paragraph (ii) amended June 2010)
The historical background of this Article is explained in Legal Circular 27:3.
Page III